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On July 1, 2014, the Federal Trade Commission (“FTC”) commenced an action against T-Mobile USA, Inc. (“T-Mobile”) for unlawfully “cramming” third-party content provider charges on consumer telephone bills. In a press release issued by the FTC on Tuesday, the FTC noted that the filing of this lawsuit is consistent with its ongoing “significant efforts to end mobile cramming.” As a result of the FTC’s lawsuit, numerous third-party content providers can expect to receive indemnification demands from T-Mobile, putting content providers on notice that they may incur financial liability as a result of this action. Please note that the cramming lawsuit will likely affect how reserve funds are distributed by T-Mobile to its third-party content providers.

Allegations of Cramming

The FTC’s complaint alleges that T-Mobile “has continued to charge consumers for Third-Party Subscriptions even after large numbers of consumers complained about unauthorized charges. Refund rates for the subscriptions were high – in some cases as high as 40%.” The FTC has also alleged that T-Mobile effectively hid charges on its bills, both in electronic and hard copy form. Particularly, the FTC charges, T-Mobile’s electronic telephone bills simply listed third-party charges as “Premium Services,” but provided no detail as to what those particular charges were for. With respect to hard-copy bills, “[t]hird-party charges are not broken out separately in the summary [on the bill], but have been lumped together under the generic description ‘Usage Charges,’ which may include both third-party charges and other charges, such as for texting.” Instead, the detail associated with the charges typically does not appear until the end of the customer’s T-Mobile bill, which can be upwards of 50 pages long. The FTC found it especially troubling that T-Mobile continued “cramming” third-party charges onto its telephone bills despite industry auditor alerts, lawsuits and news articles detailing the deceptive practices of some industry third-party content providers.

Potential Impact

The FTC’s lawsuit against T-Mobile, filed in the United States District Court for the Western District of Washington, has been big news. Given the scope of the allegations, and the public nature of the action, a swift settlement is unlikely. T-Mobile may be compelled to fund part of its defense of the lawsuit with third-party content provider funds, including reserve funds. It will be important in the upcoming months for third-party content providers who billed consumers through T-Mobile to be prepared to face a number of legal challenges themselves.

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